Household debt is back down to where it was in 2006, according to this TIME article. It’s a feel-good datapoint; some economists & market analysts cite it with approval and enthusiasm. There’s even a (very smart) guy out there, Ray Dalio, who talks about “beautiful deleveraging,” which is what he thinks he sees.
But the truth is contained in this bit:
The decline in household debt, however, doesn’t necessarily mean we’ve changed our ways. In fact, says Mustafa Akcay, an economist at Moody’s, “nearly 80% of deleveraging is caused by defaults.” Only 20% of the decrease comes as a result of what he calls “voluntary deleveraging,” i.e. the hard work of paying down our debts faster than we borrow.
“Most of the decline in outstanding aggregate debt has been defaults,” agrees Brookings Institution economist Karen Dynan, who last year analyzed financial institution charge-offsof loans that have gone bad and found that the value of defaults was about two-thirds as large as the total decline in household debt.
Source: http://electricalcontractor.com/?p=6706
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